Recently, the U.S. Small Business Administration (SBA) provided notice of a proposed rule, Small Business Size Standards, that would fundamentally restructure how the federal government defines a “small business.” The rule proposes new size standards for 338 industry groups and industries.2 On that same day, the SBA provided notice of a second proposed rule, Small Business Size Standards: Revised Size Standards Methodology, which would change the size standards methodology.3 These two rules together, if promulgated, would overhaul the current system for classifying small businesses. Companies that either qualify for small business status at any government level (federal, state, or municipal) and other companies that team with small businesses to take advantage of the certification status should take note of the changes, begin to pivot accordingly, or submit comments to the SBA.
Notable changes to the proposed SBA size standards include:
1. Expanded Eligibility: Critically, and perhaps most notably, the proposed rule would raise the thresholds for small business status. The SBA estimates that the changes would make 114,541 firms newly eligible for small business status, expanding the pool of eligibility.4
2. Simplified Structure: The proposed rule would simplify the size standard. If promulgated, it would replace the current system of approximately 1,000 individual size standards, organized at the six-digit North American Industry Classification System (NAICS) level, with 338 standards set primarily at the four- and five-digit NAICS levels.5
3. Shift to Employee-Based Measures: The proposed rule would move a substantial number of industries from receipt-based to employee-based measures, which could change both how a firm calculates its size and which competitors share its market.6
4. Streamlined Methodology: Under the current methodology, the SBA uses seven factors to calculate size standards. However, under the proposed rule, the SBA would use three factors to calculate size standards: (1) national industry size; (2) number of geographic markets; and (3) an adjustment for net imports.7
5. Productivity Adjustment: The proposed rules would add a productivity adjustment to revenue-based standards so that they operate more like employee-based standards, which already capture a similar productivity effect.8
6. No Reductions: The proposed rule would not reduce any industry size standards, which the SBA attributes to the difficult conditions small businesses faced from 2021 through 2024.9
The SBA Office of Advocacy issued a press release on September 17, 2026, generally supporting the proposed rule. However, the Office of Advocacy also significantly revised the SBA’s impact estimates, concluding that only 4,000 to 6,000 current small contractors would gain small business status (compared with the SBA’s estimate of 37,002 firms) and describing the proposal as a “narrow, targeted adjustment to eligibility, rather than a broad expansion of the small-business marketplace.”10
The SBA contends that the proposed standards would yield several benefits: a simplified classification framework that is easier for businesses to navigate, expanded eligibility for government contracting and loan programs, reduced compliance burdens, and increased competition in the federal marketplace.11
By the original September 21, 2026, deadline, the SBA had received more than 2,100 comments on the size standards proposal, most of which opposed the proposals as drafted.12 More than 200 participants signed up to testify at the SBA’s September 17, 2026, virtual public forum, and the SBA held an in-person town hall in Denver on September 21, 2026.13 Commenters, including House Small Business Committee staff, raised concerns about the speed and magnitude of the threshold increases (some exceeding 1,000 percent), the short 30-day comment period, and the risk that admitting firms many times larger than current small businesses into the set-aside market would crowd out truly small firms.14 In response, the SBA extended the comment periods for both proposals by 60 days, effective September 21, 2026, and published September 24, 2026, explaining that it was providing the additional time “in response to requests for additional time to comment and following the SBA’s clarification of the impacts of the SBA’s proposed changes.”15 Comments on both proposals are now due November 20, 2026.
The current size standards remain in effect unless and until final rules are issued. In the meantime, businesses that compete for federal contracts (or other state or municipal government contracts that rely on such standards) or otherwise participate in SBA loan programs should evaluate how the proposed standards would affect their eligibility, as well as the eligibility of their competitors, and consider submitting comments on the proposed standards and methodology before the November 20, 2026, deadline.16
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Founded in 1938, Snell & Wilmer is a full-service business law firm with more than 500 attorneys practicing in 17 locations throughout the United States and in Mexico, including Phoenix and Tucson, Arizona; Los Angeles, Orange County, Palo Alto and San Diego, California; Denver, Colorado; Washington, D.C.; Boise, Idaho; Las Vegas and Reno-Tahoe, Nevada; Albuquerque, New Mexico; Portland, Oregon; Dallas, Texas; Salt Lake City, Utah; Seattle, Washington; and Los Cabos, Mexico. The firm represents clients ranging from large, publicly traded corporations to small businesses, individuals and entrepreneurs. For more information, visit swlaw.com.
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